Services sector key to today's Q2 growth data

The country’s gross domestic product (GDP) numbers for the second quarter of this financial year, due to be issued tomorrow, would depend on how the services sector did.

This is not only because the tertiary sector is the largest contributor, at a little over 60 per cent of the economy. It is also because industry only partially recovered in the second quarter at an aggregate level.

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However, the secondary sector’s output contracted in two of the three months, July and September, of the three in the quarter. It had fallen in as many months in the first quarter as well.

Besides, agriculture might not give much of the relief, economists said, though the monsoon had recovered in August and September.

The economy grew 5.5 per cent in the first quarter, against eight per cent in the corresponding period of last year. Industry (without construction) had grown by just 0.8 per cent against the 6.5 per cent in April-June of 2011-12 and services by 7.4 per cent against 9.3 per cent earlier. Agriculture grew 2.9 per cent, against 3.7 per cent in the quarter last year. The economy grew 5.3 per cent in the fourth and final quarter of 2011-12.

“If industry grows sub-three per cent and agriculture also grows sub-three per cent in the second quarter, the burden to give a boost to GDP will fall on services," said Anis Chakravarty, senior director, Deloitte in India. He said so while also noting that services did not perform too well in the first quarter, falling below eight per cent growth after remaining above that level for quite a few quarters.

GDP grew 6.7 per cent in the second quarter of 2011-12.

From the Index of Industrial Production (IIP), industrial output contracted 0.3 per cent in the first quarter. The difference between GDP data on industry and IIP data is because of wider coverage of some smaller units in the national accounts, which are not taken into account in the factory output data. IIP data for the second quarter showed industrial growth turned positive in the second quarter at 0.55 per cent. However, it was all because of the 2.29 per cent growth in August, since July and September figures were negative.

Manufacturing, the dominating sector in IIP, contracted 0.84 per cent in the first quarter and grew by 0.15 per cent in the subsequent three months of this financial year.

There is no official figure for services in the second quarter. However, if one sees the HSBC purchasing managers' index (PMI), manufacturing growth averaged 54.9 points in the first quarter and fell to 52.8 in the second. Services expanded by 53.9 points in April-June but increased to 55 points in July-August.

PMI segregates expansion from contraction at 50 points. If PMI matches official data, the second quarter GDP might also get a boost from services sectors, as in the first quarter. However, the PMI is only a survey of 350-500 private sector companies. Besides, it is a month-on-month calculation, against the GDP year-on-year math.